(Winter is Here)
Winter is here early this year. Usually here, in Southern California, we do not see snow or rain until middle to late January. The forecast is for more of the same. It appears this is a similar story in major areas of the U.S. Will this year bring us a white Christmas?
Starting this week, the Institute of Supply Management (ISM) Manufacturing Index released their November reading. This is a good leading economic indicator (LEI) of the economy and helps gauge changes in the business cycle. Changes in this index are highly correlated to changes to the gross domestic product (GDP). It is the difference between new orders and inventories which is a good measure for future production. The market was expecting an increase over October’s reading of 48.3. Anything below 50 is believed to indicate the US economy is in a contraction and if over 50 reflects the economy is in expansion. For the fourth month in a row the number came in below 50 and surprising Wall Street came in below October’s reading at 48.1. This is near the low of 47.8 in September.
New Orders Index read 47.2 in November, a decrease of 1.9 when compared to 49.1 in October. This reflects a higher rate of contraction for the fourth straight month. There are six top industry sectors and of those, five contracted and only one expanded from the October performance. Other Manufacturing Indices (OMI) reporting a slowing trend include Employment, Inventories, Customer’s Inventories, Backlog of Orders and New Export Orders. Rising Manufacturing Indices include Production, Supplier Deliveries, Prices, and Imports. There are no indices expanding at this time.
Economic forecasts for 4th quarter performance surged in November to 1.7%. After this report, forecasts dropped to 1.3%. Economists are debating if this is the bottom and if in future months this will be reversed both in the U.S. and globally.
With the Federal Reserve lowering rates mid-cycle labeled as an adjustment, the economy is expected to turn upward in coming months. It is also argued that the Fed did too little too late. Others argue that the trade tariffs have impacted the economy and the economy can’t move forward until this dispute is resolved. Reviewing the corporate earnings, most companies have lowered expectations and have seen results come in above them. This is a case of, “not as bad as expected.”
There is more data to come and most expectations are that 2019 will end strong. December is historically known for its strong performance. We will have to wait and see how this quarter plays out and what the reports show us through this month and in January for the 4th quarter. This is a different winter. Stay prepared and on your toes.
If you have questions on a particular company or investment and would like our feedback, contact us at my email below. Our team will research and respond to you with our recommendation and opinion.
Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC. For questions or investment topics please email me [email protected].
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